June 24, 2009

News Flash: Insourcing Fosters Relationship

A recent article on TechTarget claims that IT insourcing is on the rise. In other words, organizations are beginning to bring their recently outsourced IT functions back in-house. The article cites a few motivating forces for this change. Organizations have more control, can respond more quickly to business change, and are leery of outsourcing going forward due to unpleasant past experiences. The articles cites on of the reasons for outsourcing - it was cheaper - may not actually be true. While outsourcing may be cheaper short-term, the long-term cost may be more. Not an epiphany, for sure.

But what really caught my eye was the following quote from the article:

There's a sense of intimacy with the business users that's hard to achieve with outsourcing.

That's a rather profound statement. It took outsourcing for us to realize that collaboration with business users is a critical success factor on an IT initiative? Wow.

IT Labor

Since we're on the topic of outsourcing.... Another popular reason why organizations outsource is due to the IT labor shortage. Many claim there is a lack of qualified IT candidates. This reason is also the foundation of the H-1B program. Not so fast. I've never actually believed this was entirely true. My good friend Randy once said, "There's also a shortage of $2.00 per six pack micro-brews." If you're interested in IT labor, this Lou Dobb's video might interest you.

Conspiracy Theory

I take my car to a certified GM dealership, even though it's a bit more expensive than going to the hometown mechanic. Why? Because I know they won't use secondhand or refurbished parts. I also know they have the specialized equipment and expertise to work on my model vehicle. But if the GM dealership charged a 50% premium for the same level of service I could get at my local auto shop, I'd have no motivation to take my vehicle to the dealership. Now, apply this analogy to corporate IT.

If corporate IT charges a 50% premium over an outsourcing provider, but doesn't provide any strategic or competitive advantage to the organization, what's the motivation to use corporate IT? Instead, it's sound fiscal strategy to outsource. In other words, why should I pay $100 an hour for crap when I can get the same crap for $75?

For now, let's ignore the crap (that's a topic of discussion for another day), and instead focus on cost. $75 an hour may seem cheaper than $100 an hour, but only when you fail to factor in the number of hours it takes to complete a project. And the challenges inherent to distributed development, contract negotation with outsourcing providers, and more will impact delivery, which will increase time, which will drive up cost. So now, we're starting to realize that outsourcing isn't necessarily cheaper. Don't be surprised to see aggressive legislation on the table soon asking for an increase to the H-1B cap. Wouldn't it be ideal to have the best of both worlds? Cheap labor that's co-located! Really? Is it possible there's a causal relation between IT failure, motivation behind outsourcing, and the H-1B program?

Disclaimer: I'm not claiming that everything we deliver is crap. But there is no shortage of evidence illustrating some of the challenges we've had in delivering IT projects.

Disclaimer: I don't claim that we should abolish the H-1B program. However, there is evidence that H-1B visa holders are paid between $12,500 and $20,000 less than citizens. That's not the purpose of the program.